Rico Auto Ltd is a world class engineering company supplying a wide range of high precision components and assemblies to the automotive sector. The company has a global blue-chip client base with marquee names like Volvo, Honda, Ford, GM, Suzuki, Eaton, Caterpillar, Fiat, Tata, Honeywell and all leading Indian automotive manufacturers. Rico has been a very good investment story with investors making excellent returns by way of decent capital appreciation and handsome dividends over the last decade. For the quarter ended September 2015 the company reported consolidated total revenue of Rs 244 crore and a net profit of Rs 9.42 crore. On a face value of Rs 1 per equity share and P/E of only Rs 3.33 the Rico Auto stock is underpriced at the present juncture. Most equity analysts and fund managers are quite bullish on the company and expect the stock to appreciate handsomely over time. Currently the stock has been in a momentum and trading in a broad range of Rs 45-50 during the last couple of months. It is presently trading at the lower end of the range on the Indian bourses and can make a big upward move in the next six months. The stock is expected to appreciate by 30% from the current levels in the medium term.
Indian equity indices closed flat amid lacklustre trading ahead of the holiday season with the BSE Sensex and Nifty closing the week at 25,838 and 7,861 levels respectively. Markets have been stuck in the 7,650-7,860 range raising hope of further strength amid rising indicators. The mid caps had a Santa rally during the week and with no major reform being announced in the closing winter Parliament session, the large caps may continue to see underperformance. In the current financial year, large caps have delivered negative returns of around 7% while the BSE mid cap index has delivered a 7.5% return, thus outperforming by a clear 15% margin. The main reason for this outperformance by the mid cap companies are improvement in working capital, decline in interest rates and lower commodity/ input costs. Not to mention the increasing monthly investment inflow in mid cap mutual funds by investors through the systematic plan route. While the same uptrend in mid cap stocks is expected to continue in the year 2016 but as valuations become expensive, investors will have to be very selective in choosing their favourite stocks. Focus should be on their balance sheet, cash flow working, management profile and uptick in earnings. Currently the stock market is on a short-term uptrend with focus shifting to global cues. Market mood could vacillate in a sideway range with the expiry of future contracts next week and also with the holiday season, volumes are expected to be on the lower side.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.